Some Disadvantages of Portfolio Diversification

Some Disadvantages of Portfolio Diversification

Making your portfolio diversified across a number of various investment categories, such as stocks, bonds, and cash equivalents, and within categories, such as stocks from different kinds of companies and a mix of corporate and government bonds can help decrease your risk. But there can be some disadvantages to diversification.

Indeed, diversification is universally recommended to lessen the risks of losing money, volatility and emotional stress. However, just as it can limit downside by reducing the possible risk and volatility across a group of investments, it can also limit your upside. It is actually possible for diversification to increase your risk if it leads you to buy investments that are too risky or that you don’t even understand very well.

A more-diversified portfolio can also be more time-consuming to handle than a less-diversified one, because you need to follow and trade in more investments, adding more layers of diversification just to make sure you are following to them. If maintaining your diversification requires you to micromanage and trade more frequently, transaction costs could be higher.

Below are some disadvantages of diversification that you might encounter eventually in your investment journey.

  1. Incomplete Return

Diversification can help you from striking out,  but it also keeps you from hitting a home run. For instance, if you invest your money in five various stocks, and one takes off, the other four stocks hold back your total return.

  1. Cost

Typically, you have the option of investing through a full-service broker, a discount broker or an online broker. Each category of broker has a unique commission format, and they all actually charge commissions or transaction fees. Placing all your money into a single investment normally can end up to a lower total fee than investing the similar amount of cash to a number various investments.

  1. Missed Fortune

You are neither to make a huge profit from a single sector nor to suffer a huge loss, if your portfolio is widely diversified. If 5 percent of your holding unexpectedly spike, you will make far lesser profit than if 100 percent of your holdings were in that place. It is very difficult to forecast or predict where and when this will occur to an asset class or market sector. The more firmly your investments are focused, the greater risk you are actually taking, and this can lead to bigger losses or to bigger gains.

  1. Wider Exposure

You could experience some amount loss whenever some part of your portfolio declines in value, if your holdings are widely diversified. If the overall market is decreasing, it is more likely that your holdings will perform the same thing. When you diversify your investments, you safeguard yourself from extreme financial exposure, but at the cost of missing out on probable major profits.

  1. No remedy

If you invest in a number of different stocks that all end up to be problems, your portfolio will still lose money, even if it is diversified. That’s it, diversification neither guarantees a profit, nor completely secure you against a loss.

Investors’ Common Diversification Mistakes

Investors’ Common Diversification Mistakes

Oftentimes, investors have a lot of things to consider, but some investment decisions matter more than asset allocation. A well diversified portfolio is important for young investors as well as for retirees. You may want to have a diversified portfolio so you can have your money resting in various types of assets. This is because if one investment declines, it won’t significantly affect others. So, if you got an investment that extends across a wide range of various types of assets, then you lessen the risk to your portfolio in whole.

Sadly, there are some investors who don’t know anything more about diversification. As the quotation says, don’t put all your eggs in one basket. Allotting time to fully decipher the ways and practices you might be executing yourself could earnestly improve your portfolio returns and deter shattering risk.

A well-known belief that exists is that younger persons should invest more in stocks and older beings should buy more bonds. Other people like to follow the “100 minus your age” rule to identify asset allocation. Begin with the number 100 and subtract your age. The difference is the certain percentage you should invest in stocks, and the rest should be allocated in bonds.

The simple rules or methods of thinking and deciding one’s asset allocation should build a long term growth for the investor, while giving fixed income stability. While it’s not a bad situation to start for the novice, there are a lot more things to consider when forming a completely diversified portfolio. Below are some investors’s mistakes they commit to diversification.

  1. Handling too many stocks which costs can destroy you

The more stocks an investor handles or owns, the more they likely to experience higher transaction fees as the relative size of their orders are condensed in relation to the fixed costs of trading. These higher transaction prices significantly lessen long term returns, especially in smaller portfolio sizes.

  1. Handling too few stocks which lead you to lose

Owning a few stocks may reduce your portfolio volatility, but the real risk is it significantly underperforms the market by missing the winners. According to a renowned financial theorist that you could only lessen the risk of underperformance by owning the entire market. Intuitively, by owning too many stocks, there will come a time when the impact of looking for a winner has a negligible effect on your portfolio, which rather destroys the joy of it.

  1. Mistakenly diversified portfolio

In the portfolio theory, it has shown that there is an ideal level of diversification between 2 stocks which both minimizes risk and maximizes return, ideally you want to own stocks that changes direction sharply to achieve this. But while this may be easy in theory, it seems to be way beyond the awareness of most investors. Higher portfolio volatility lays far greater emotional pressure on less urbane investors contributing to shoddy decision making and worse returns.

Some Tips to Diversify your Portfolio

Some Tips to Diversify your Portfolio

Diversification is using various trading strategies and ways for an investor to have a great chance of survival. However, if diversification is not done effectively, it can have an opposite impact and compound instead of diminish risk. So, it is better to have diversification done in a correct and proper way.

Diversification is a battle cry for many financial planners, fund managers and individual investors alike. It appears almost impossible to sell a stock for any less than the price at which you purchased it, when the market is increasing. It may also seem silly to be in anything but equities, when the indexes are surging up. We should take into account the importance of a diversified portfolio in any market situation, because we are unsure of what will happen in the market at any moment.

Moreover, it is always important to regularly check your portfolio. You must always check your asset allocation, at least once a year, or anytime  your financial circumstances change significantly. Checking will help you to identify your need to re-balance your asset mix or reconsider some of your specific investments.

Setting and maintaining your strategic asset allocation are among the most important rudiments to achieve long-term investment success.  Below are some tips to help you in diversifying your portfolio.

  1. Extend your wealth

Never put all your investment in one stock or sector, although equities are good. You should build your unique virtual mutual fund by investing in some companies you know, trust and even use daily. Knowing a company or using its goods and services can be a good approach to investing.

  1. Think of index fund or bond fund

Investing in securities that traces different indexes make a good long-term diversified investment for your portfolio. You may consider adding index funds or fixed-income funds to the mix. You are dodging more your portfolio against market volatility and uncertainty, through adding some fixed solutions.

  1. Continue building

If you have $10,000 at hand to invest, use dollar-cost averaging approach. This is used to smooth out the peaks and valleys created by market volatility, you invest cash regularly in a specified portfolio or funds. Add to your investment on a regular basis.

  1. Know when to leave

Stay current with your investments and keep in touch with the over-all market situations. Not because you have your investments on autopilot doesn’t mean you should ignore the forces at work, even though buying, holding and dollar-cost averaging sounds good strategies. You should know what is happening to the companies you invest in.

  1. Keep your eyes on commissions

You should understand and know what you are getting for the fees you are paying, if you are not the trading type of investor. Some companies attach a monthly fee, while others charge transaction fees. Be watchful and knowledgeable about what you are paying and what you are getting for it. You should keep in mind that the cheapest choice is now always the best.

Investing is a worthwhile thing to do if we take a disciplined approach, using diversification, buy-and-hold and dollar-cost-averaging strategies when investing. It can be fun to do even in the worst of times.




One of the biggest struggles that many investors face is picking a right mutual fund structure that would suit their needs. Looking for a scheme from thousands of mutual fund schemes available in the market is not a piece of cake. However, you would be comfortable if you are prepared to obey some broad rules.

Now, if you are thinking of investing in mutual funds, but aren’t sure how to go about it or which one is the most suitable for your needs, you need not to worry because someone out there shares the same sentiment. You are simply not alone. Below are some rules you may want to consider in picking the right mutual fund that will help you achieve your ultimate goal of success in investing.

  1. Pay full attention to expenses

Over extended periods, funds with lower cost beat funds with higher cost. Costs can be the best indicator of future returns. By simply picking funds with low cost almost doubles your chances of beating an index.

  1. Taking importance of the company’s culture

The fund’s expense ratio often shows you what kind of company you are investing with. Are you investing with an avaricious financial-services firm, ready to tout you whatever is in trend this season? Or are you buying from a company that sees you as a long-term client? The second variety tends to charge less.

The way a company treats you as an investor normally reflects how it treats its employees. Be reminded that even halfway experienced money managers can find high-paying work elsewhere if the company they are working for maltreats them.

  1. Find the consistency of style

It is so important hat a manager stick to a certain investing style, for a fund to fall perfectly into a diversified portfolio. Let’s say if you purchased a fund because you want your portfolio to include small value stocks, then you don’t opt for a fund manager jumping into a large growth issue.

  1. Be mindful of the risks

Make sure that you check out the direction the fund took to rack up past gains and decide whether it would be convenient for you to take the ride. Compare to returns that may vary, funds that have been risky tend to stay risky.

  1. Seek for the background performance

You should seek for the fund’s long-term performance record, at least three to five years, versus that of its peers, as well as how it has fared over shorter stretches. Match the results to the category averages, you cannot really fault a small-cap fund manager for worthless year if a small-cap funds performed poorly.

  1. Look for low taxes

You can never forget about taxes simply because you do not want to sell your fund shares. As a fund owner, you also possess all the stocks in the fund’s portfolio. If the fund manager sells a stock for a large capital gain, you should report that gain on your tax return.

In picking a mutual fund, always make sure that its strategy is aligned with your investment goals. Selecting a mutual fund may appear like an intimidating task to do, but knowing your investment goals and risk tolerance can take you to the halfway of the battle. If you take the above-mentioned rules into considerations in picking a mutual fund, you will accelerate your chances of success.


Mutual Fund Investors’ Common Mistakes

Mutual Fund Investors’ Common Mistakes

Mutual Funds have taken its limelight over the past few years as a way of building and growing wealth. Over time, investors keep investing in various mutual fund schemes partly based on their own study and partly because of their peer or advisor suggestions. This shows that the beginning of online investment platforms eased mutual fund investing for the novice. This ease motivates many of the first-time investors to take a do-it-yourself method instead of depending on financial advisors for professional advice.

However, the lack of understanding about mutual funds and capital markets leads people to make mistakes in their investment decisions. The mistakes occur commonly but the knowledge of it is hardly shared leading to the repetition of the same mistakes. These mistakes may affect the most important part of the investment – the returns.

Hence, below are some common mistakes that mutual fund investors should avoid, so that they can start earning the returns they deserve.

  1. Disregarding the Expense Ratio

Like any other service, mutual funds come at cost because you will have your investments managed by professionals. If you are disregarding the expense ratio of a fund which is on the higher side, you are decreasing your returns. The high expense ratio of Equity Mutual Funds is 2.5% and Debt Fund is 2.25%. Low expense ratio is an indication of efficiency and good fund and higher expense ratio signals a more expensive fund.

  1. Underrating Volatility

Volatility is beneficial when the markets are rising, at the same time, it is fatal when the markets are falling. It is an aspect that has the ability to make an impact to your investments profoundly and that it should not be underrated. You might underrate volatility thinking that you can time the markets and gain back the funds when the markets are about to fall. This is a very deadly task and you might end up losing your money. So how are you going to measure volatility?

Volatility can be measured by Standard Deviation. Standard Deviation of fund measures the extent of volatility. This gives you an idea about the performance of funds in both bull and bear markets. Volatile funds may affect your investments, if you plan a short-term investment. However, the effect caused by volatility is condensed in a long time horizon and minor fluctuations do not make a difference. So, it is always recommended to go for funds which are stable in nature rather than volatile ones because it helps to make the most of the market state.

  1. Disregarding Debt Funds

Investors tend to overlook debt funds because they believe the returns are not as high as equity funds. However, debt funds are a very diverse category. There are different kinds of debt funds which could be used for various investment purposes. As an investor, you have to discover the diverse category of debt fund and allot your investment in both the classes for the best outcome. If you make commit the mistake of disregarding debt funds and focus only on equities, you may be uncovering your investment to a greater harm and missing out returns that non-equity components of investments offer.

Mutual fund investing mistakes can simultaneously affect your investment life. Now that you know some of them, it is time to let go of them and make only the investment practices that will help you gain the maximum profit.



To start investing, you don’t necessarily have to be the world’s richest person living. Many people refuse investing because they think they need to have a great amount of money, as in thousands of dollars, to begin investing. This is totally untrue. In fact you can invest in stocks regularly by saving loose change. Interestingly, you can start investing with an amount at hand as little as $50 per month.

There are several ways to begin investing with a small amount of money, with many online and application-based platforms making it faster and easier than ever. All you need to do is to begin somewhere. The moment you do, it will get convenient eventually.

The key to growing wealth is building good habits, like placing your money away monthly. If you let investing as part of your habit, you will be in a much more robust financial situation down on your way.

Below are some simple ways to start investing with a small amount of cash.

  1. Try the piggy bank method

Investing money and saving money are relatively connected. Basically, you have to save some cash up, for you to invest money. And you can actually do that in very small steps. If you are not used to saving money, you can begin by keeping at least $10 per week. Over the course of the year, it can get to over $500.

You may find piggy bank some silly method, but to tell you, it is often an important first move. Practice the habit of spending a little bit less than you earn and put your saving away in a safe place. Piggy bank’s electronic counterpart is an online savings account. You can withdraw money if you need  it.

  1. Place your money in mutual funds with low initial investment

Mutual funds are investment securities that lets you invest in a portfolio of stocks and bonds with a single transaction, making them the best for beginners.

But the problem is, many mutual fund companies require initial minimum investments ranging between $500 and $5,000. Those minimum amount might be out of your reach, especially if it is your first time to invest with a small amount of money at hand. However, some mutual fund firms will ignore the account minimums if you agree to automatic monthly investments ranging between $50 to $100.

An automatic investment agreement is actually convenient if you can do it through payroll savings. Just ask your human resources department how to set it up.

  1. Paying your debt

There are two reasons for suggesting to pay your debt: firstly, you should not be investing a small amount of money if you have an existing debt, especially debt that is unsecured; secondly, paying your debt is one of the perfect ways to lock in an above average and a definite rate of yield on your money. This is particularly true if the interest charge on your credit card balance is in double digits.

For instance, you have a balance in your credit card of $1,000 with an interest rate of 15.99% every year. By paying your credit card off, you will lock in a nearly 16% amount of return on your money. By surfing the balance to one of the many credit cards with 0% interest, you can make that card go away faster. Through this, each of your payment goes directly to the balance on the card and not to interest, however, this kind of offer may last a limited time so better pay your debt off quickly.

  1. Engage in your employer’s retirement plan

There is a way that you can start investing in an employer-sponsored retirement plan with amounts that are so small you would not even feel them. This is especially a good way, if you are currently experiencing tightening of budgets.

For instance, you plan to invest only 1% of your salary in the employer plan. What makes the investment easier is that the tax deduction that you would get for investing will make the contribution even smaller. The moment you engage to a 1% contribution, you can increase it steadily yearly. If you get a 2% increase in pay, it will effectively be dividing the increase between your retirement plan and your checking account. But, if your employer gives a matching contribution, the arrangement will get even better.

Investing despite the initial small amount of money can grow big rewards. Start with a small amount, afterwards increase as you get more used to the process.

Day Trading Strategies for Beginners

Day Trading Strategies for Beginners

Day trading is like starting a special career, there are a lot of things to put in mind, especially when you are new to it. Day trading is the process of buying and selling a financial instrument within a single trading day. It can also occur multiple times and in any marketplace, but most commonly in the foreign-exchange market, over the course of the day. It takes the benefits of small price moves, thus, making it a profitable game. However, like any other game, it can also be so risky for novice and for those who don’t follow a well-plotted method.

Day traders are normally refined and financially well-off. They use high amounts of leverage and short-term strategies in trading to capitalize on small price movements in highly-liquid stocks or currencies. They look to take advantage of volatility every trading day, and lessen overnight risk brought by events, such as a bad earnings surprise, that might occur after the markets are closed.

Now, let’s take a look at some of the strategies that can guide in the right path as you start your journey in day trading. Learn how to day trade like a pro.

  1. Make sure to prepare a target price before diving in

If you are planning to purchase a long position, think in advance how much return is acceptable, also a stop-loss level, if the trade turns against you. Afterwards, stick with your decisions.  This helps you to restrict your potential loss and keeps you from being greedy if price hits to an untenable level.

  1. Be enduring

It may appear ironic, successful day traders often don’t trade every day. They may be in the market, at their computer, but if they don’t notice opportunities that hit their criteria, they will not trade that day. That is far better than going against your own best decision out of an impatient desire to just do something.

  1. Be self-controlled

Remember that you have to prepare a trading plan and stick to it. If you are trading on your own, impulsive behavior can be your worst nemesis. Greed can affect you for too long and fear can cause you to give up too soon. Keep in mind that you don’t get rich in a single trade.

  1. Use situations where demand and supply are extremely imbalanced as your entry points

If the supply is close to exhaustion and there remains investors who are willing to buy, the price is more likely to go higher. However, if there are still spare supply and no willing buyers, the price will decline.

  1. Don’t be frightened to click the “order” button

Beginner traders often get paralyzed by analysis, because they get enfolded in looking at the candles on their screen and can’t move and decide immediately when opportunity suddenly knocks before them. If you are disciplined enough and you always work your plan, placing the order should be automatic. If ever you are wrong, your stops will get you out without major loss.

Day trading can be a difficult skill to master, it requires time, skill and discipline. The strategies mentioned above can guide you in developing profitable plans. With adequate practice and persistent performance assessment, you can greatly increase your chances of trading success.